Neil Woodford said he believes fundamental economic analysis backs his belief the UK economy will do much better than expected this year.
Mr Woodford, who on the fourth anniversary of the launch of his eponymous investment management company saw his flagship Equity Income fund about £3bn smaller than at its peak of more than £10bn in 2017, said economic data backed his view that UK domestic growth can accelerate in the months ahead.
The manager, whose Equity Income fund has fallen by nearly 10 per cent in 12 months, believes central banks hiking rates and ending quantative easing at the same time will have the effect of sharply reducing the level of money supply growth, reducing the potential growth rate in the world economy.
Mr Woodford said: "There is an increasing risk that central bankers in the US and Europe will make a significant policy error by withdrawing extraordinary monetary policy too soon or too fast, with obvious economic and market consequences."
But he noted that money supply continues to expand in the UK, as interest rates have not risen as expected.
The base rates was expected to increase in May, but softer economic data caused the Bank of England to pause.
This leaves the UK on a different monetary policy path than most other developed markets, but with, according to Mr Woodford, the equity market being much cheaper in the UK than elsewhere.
He said: "There is one developed economy whose money supply growth outlook is not facing the impact of the withdrawal of extraordinary monetary policy.
"The UK economy has sustained nominal broad money supply growth of around 5 per cent a year recently – this, coupled with all the other positive trends in the UK economy that we have been highlighting, is enough to suggest that domestic growth can accelerate in the months ahead, leaving consensus expectations looking far too low."
Mr Woodford continues to expect the UK economy to grow by about 2 per cent in 2018, considerably more than the government and the Bank of England's forecasts.
As FTAdviser has previously reported, the FTSE was the best performing global stock market in May.
Philip Milton, who runs the advice firm of Philip Milton and Co in Devon, said he regards the UK stock market as attractive right now, as valuations are generally low.
He said: "The income yield on the (FTSE) index is now above its post 1990 average, which is quite interesting if you think how high interest rates were earlier in the 1990s too.
"The S&P 500 index is below its average. This does tell us a few things but for the contrarian value investor, whilst patience may be required, it suggests which market is dear and which is cheap.
"One thing for sure is that if you take your money from the building society and invest in the UK All Share index, while this is not a recommendation, the income you will receive is significantly higher – and over time you have great potential for the income to grow and the capital to increase."
david.thorpe@ft.com
